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Thursday, May 19, 2011

Trade of the Year

Hey there,

I’m sure as traders or investors we all have made bad and good decisions. More than a month ago, I typed a post about one of the biggest mistakes I’ve made as a trader “12 000 dollar mistake”
http://www.theunintelligentinvestor.com/2011/03/12-000-dollar-mistake_24.html
Today I’ve decided to type about one of the better decisions I’ve made this year.

Look at the chart for AKM below.

I bought some shares in this company on 17th January 2011 at the price of 0.71 per share. I didn’t get in sooner because that was when I had just came back to Australia after the Summer break, moved houses and got my computer set up again. So January 17th was when the price had just broken the resistance line for the 4th Darvas box.

After taking that position, I was in the red for about a month before something happened. At about the middle of March they made an announcement about the quality of coal in one of their projects. If you look at the chart, that is when the price started climbing for 4 days in a row with a volume spike on the day of the announcement (some insider trading going on here? Lol)

In the midst of all this, I almost made a very big mistake. After the 7th box was established, I got a bit greedy and left my stop loss at 0.78 thinking that I would not sell if the price dropped to 0.92 and will hold until I make a bigger profit. Of course when you’re in the right position you always become confident and want to make more. Luckily, after a day or two, I came to my senses and told myself that I really needed to stick to my trading methods. So I moved my stop loss up to 0.91.

Then on April 19th, the price dropped and hit my stop loss. All AKM shares were immediately liquidated automatically. A bit of stress followed as I watched the price climb back up for a few days. And then well I’m sorta glad the price started dropping and continued dropping.

I guess the biggest lesson learnt here is stick to your stop losses!!!!! They can help you limit your losses as well as cash your gains. It can be stressful if after a stop loss is triggered, you lose the opportunity to make more money. Or like in my old post, you lose the opportunity to make a helluva lot of money but they are there for a reason which I think is to reduce the chances of us making a bad and emotional decision when trading which can bring dire consequences.

So what do you think about Darvas boxes and stop losses? Have you ever used them? Do leave comments or send me emails, I’m always happy to read them. If you like this site, click on the little like button on the right hand side of the screen to like the page on facebook or follow me on twitter!